Setting Your Consulting Rate

Figuring out the rate to charge clients can be tricky. Obviously you want to be paid as much as possible and your clients want to pay as little as possible. In the middle is some rate that you'll both deem as fair. But what's fair?

I suggest you start with figuring out the permanent salary someone would be paid to do the job. To this number add the typical bonus that the job would receive. Also throw in the equivalent of what you'd have to pay for health insurance if you weren't covered by a company plan. And finally add the amount of the typical company match to a 401K plan. This amount is usually some small percentage of your salary up to a maximum in the low thousands. We'll call this number the permanent gross income.

You're not done yet. The next step is to figure out the number of hours that a permanent employee needs to work to earn the permanent gross income. The trick here is to account for paid vacation and company holidays. You'll want to deduct these days from the hours calculation. Once you have the actual hours, divide the permanent gross income by that number. This is now your base hourly rate. Anything less and you'd be better of as an employee.

One big assumption in all of this is that you don't have gaps in between contracts. If you think you will, you'll need to bump up your hourly rate to account for that unpaid time.

1 Comment

Sohaib Athar

The rule of the thumb used to be to mark up his base rate by 50 to 100 percent to account for the unpaid time. It is normally still a good deal for the client as a full time employee costs them more in terms of other costs, for example electricity, computers, HR, furniture, workspace etc.